Office Finally Comes to the Cloud

This morning in San Francisco, Microsoft took the wraps off the next version of its business online services, and for the first time the company is making Office part of the bundle. It comes with a new catchy name as well: Office 365. (Much better than the old Business Productivity Online Suite, or BPOS.)

This is a big deal because Office is Microsoft's second-largest product after Windows, with about $13 billion in annual revenue and profit margins around 70%. But the product faces a potential threat from online services that offer many of the same features at a much lower cost, particularly Google Docs, and Microsoft's response until now has been muted at best.

The enterprise version of the new online service includes the full Office Professional Plus 2010 suite--not just the lightweight Office Web Apps. The catch: businesses will have to subscribe to the software rather than buying it once and keeping it forever. If they stop paying their subscription, Office will stop working.

On the plus side, updates to the software will be delivered automatically, eliminating one of the biggest IT headaches associated with Office--the need to update hundreds or thousands of PCs every time Microsoft releases a patch, update, or new version. (Earlier, I mistakenly assumed that the service used App-V, a technology gained in an acquisition some years back. That's not the case.)

The new service also includes updates to Exchange Online for e-mail, SharePoint Online for collaboration (it will also provide a small business Web site), and Lync Online for instant messaging and conferencing. All these services get a lot of new features, basically bringing them on par with the latest versions of the equivalent on-premise servers. In particular Lync will offer videoconferencing, a feature that small businesses can seldom afford today.

Pricing? $6 per user per month for small businesses of up to 25 users. That version does not include the full Office suite, only the Office Web Apps.

Enterprises will have a variety of service tiers ranging from $2 to $27 per user per month.

Microsoft is currently accepting beta applicants for Office 365, and the service should be available commercially next year.